Of what actual value are “Wholetale” investors?
I’m talking about folks (like KISS Flippers, for example) who quick-flip houses in as-is or near as-is condition to retail buyers. What value does this kind of investor really bring to the buyer? Or even to the marketplace?
And come to think of it, you could really ask the very same question of most Wholesalers. Why couldn’t the buyer just bypass the middle man and get the house at a better deal themselves?
To take it even further: What if your chief motivation for playing the house flipping game is simply to (gasp!) make quick, easy money? Stated simply…
Is there any moral dilemma with the act of getting paid exceptionally well for basically being a middle man who does little-to-no real “work” to earn it?
It’s actually a great question to tackle, and one that our KISS Flipping members bantered about recently within the inner sanctum of our members’ discussion forum.
What follows below is the full forum thread, as of the time I’m posting this. And friend, there’s some good stuff down there. I’m posting it for public benefit because I think it really hits home on some big “inner game” issues that hold more of us back than we even know.
If this issue resonates with you at all, then I challenge you to read this carefully…then please comment and share your own thoughts below. I think you’ll find Bob’s ultimate responses toward the bottom especially enlightening. Enjoy…
Mike C:
Recently, I have ask the question, “Why wholetailing?”
I am an avid reader and I have learned it is best to give. So as a Wholetailer what am I giving? A discounted property!? A clean REO!?
Perhaps some of you share my line of thinking and would like to comment.
Thanx
Jerry:
Value.
People want real value. Areas where people want to live, providing them a deal with turn key equity and a nice rehab sells all day long. Listening to the market, and hearing what it wants, then going out and giving it to it.
Value investing applied to real estate.
Bob rocks.
JP Moses:
Expanding on what Jerry said, the “wholetale” market is hungry right now, and underserved. They’re looking for the kinds of deals we can create for them — that wouldn’t have fit their needs/criteria otherwise.
That’s genuine value to the marketplace.
…jp
Mike C:
Though I believe my question may not be specific or clear enough, I do appreciate your responses.
For several weeks, I have been asking myself, “As the whotailer what am I giving the home buyer?” In other words, why couldn’t they eliminate the middle man and just go for it.
I ask this because my Chief Definite Aim requires me to give someting. And if I just purchase a property, mark up the price, and sell it; then what am I giving. Doesn’t seem like I am taking?
Having put some thought into my own question, I thought some advantages. Like, “I reviewed the major systems for the new buyer. Or “I purchase price is so good that I am able to pass along a further dicount to the home buyer.”
So, having said that, can you suggest your resason – to help me for my chief Definite Aim.
Thank you in advance
Jason H:
Mike,
I understand your concerns…. But after reading your post. I believe you are the only one that can truly answer that question. I believe that both Jerry and JP both gave you solid reasons to your questions but its my opinion your looking for more than can be answered by anyone but yourself. It just like everyone says… Success mean different to different people so I also believe that giving and receiving is also different to different people… Hope that does make sense.
Chad S:
Mike,
It is your expertise that allows you to get deals that others cannot. It is buying these deals that allows you to make a profit. You don’t have to feel bad about that. The reality is, if you don’t, someone else will. Ultimately, flipping is a business. I believe its easier to be charitable with your profits than charitable with your business.
Seems you could take your concern to any level of flipping. Even if you are extensively rehabbing the property, why is it fair to make a profit? In my opinion, its because you found a good deal and are providing value (like Jerry mentioned). Whether you gut the place or do nothing, you are providing this value based on your expertise.
Only you can decide if that meets your inner needs.
Good luck,
-Chad
Mike C:
Who am I (we) helping? Myself (Ourselves)?
I’m pretty back and white about this so I do not intend to offend anyone, but if I do, then I apologize in advance.
Ex. No one is selling pot in my town, so if I sell pot before some one else does, then I have the edge, corner the market and I am making money.
I know my example is extreme, but please bear with me. I pick up a house, resell the house then I make money. How do I help my neighbor in, during or after the buy-sell process?
I don’t know.
When I rehab a house I add value to the property and sell the property at or below market value. I have improved a house and a neighborhood, also updated a property and provided equity to the new property owner.
Perhaps I am missing the point. If anyone can clarify for me, then I would be most grateful.
Mike H:
Are you asking how KISS Flipping helps others? My view is we’re buying a property which is a piece of crap and would not qualify for conventional financing….rehab it enough to where it will, we then sell it to someone who now can buy a property which needs minimal work AND they buy it with equity….equity is huge with homeowners, especially homeowners who may not be able to afford a total-Rehab style property….so it’s win/win for all…
Jerry:
Mike, I guess when you phrase it like that I can see your problem.
Homeowners do not buy houses regularly. They are looking for a good deal. They are looking for a simple deal.
Ultimately I guess what you are giving them is confidence. Confidence that this is the best deal they will get, which it probably is. Lots of people need to be led.
A homeowner goes out and gets a Realtor to show them 35 houses and gets tired of looking at stuff. You had the confidence to buy it, rehab it and are selling it to them at a discount. If you had the confidence to by it, and they like it and can buy it from you they will buy it.
I don’t think your pot example is very analogous, as here there are plenty of houses to buy but only one great deal. Like Bob said in the very beginning…the magic pill is controlling a great deal for your markets ACTIVE buyers.
Mike C:
Thanks, I very much like your response. This is what I am looking for me and my fellow investor – what’s in it for us (buyer and wholetaler).
-Mike
Bob Norton:
Mike – you are asking a great question but you are probably going a little extreme.
First of all, congrats on reading think and grow rich. Some may not have picked up on what you were talking about with your chief definite aim.
Second, a lot of us “FEEL” something warm and fuzzy about making a house all gorgeous and all, even if it takes 400 hours of our life.
I’m gonna give an example:
I have a coaching student right now. The $500 a month kind. AND she got a deal and is brand new to this game. We bought it for $105k, its worth $250-$275k. It needed $60k in work.
I proposed that at this point in her investing career that she take a $10k wholesale from me and go find more deals. She turned me down, wanting to prove to me she can manage a big rehab, prove this to herself and go for bigger bucks. MOST OF ALL, she was in love with the concept of providing high quality beautiful real estate to the end buyers. She was living the “flip this house” dream.
Well, we are putting it on the market on Monday (0ct 12th) and let me tell you, she is really regretting making the decision she did. Biggest reason for this is because its not “like TV” and after fighting and screaming with contractors for 3 months, 300-400 hours later, partnering with another guy to help her and going way over budget, she isn’t going to make much more than the $10k.
The point of this story is that getting emotional and providing the marketplace with beautiful houses is a feeling we all have and want. We deep down don’t want to sell crap. BUT what’s the reason for all this work?
That’s what you have to ask yourself. You already got your answer but its not the fluffed up make you feel good kind of answer you want. Your cheif aim is to flip houses at the highest profit margin possible with the least amount of effort/risk possible. You are in it for the money! Don’t ever be embarrassed about the fact that you are in the marketplace to make quick easy money!!
Your question seems to be more internal. You don’t feel all warm and fuzzy by buying something, doing nothing and making $20k. YOUR RULES tell you that you aren’t adding value. YOU HAVE TO RE-WRITE YOUR RULES!!
Go read my blog. You will see in many places like my 101 page and my about bob page that I say, flipping is a means to an end. I’m a dealmaker. And a dealmaker goes bananas to make $20k by not doing anything.
He adds value because he is providing the buyer a product that they cannot find at that price anywhere else. He is allowing the buyer to avoid the headaches of trying to buy a REO (go see my latest blog).
BUT even if you didn’t have those reasons, you need to get more personal here.
What kind of father, husband or family member could you be if you made $40-60k a month doing nothing? Would you spend that free time sharing, caring and making a difference. What would you do if I could get you 3 wholetales a month by working 3-4 hours a week? How many lives could you impact?
Hopefully you can see that you chief purpose may not have anything to do with selling well priced homes at a discount. Your main purpose may be to finance the life you have always dreamed of.
This flipping homes business is nothing more than a means to an end to finance and free up time to allow you to really be the kind of man you want to be.
Hope this helps bro. Great great question. Go work on your rules. I have a feeling that you are probably repelling some great opps because of your inner turmoil. I can’t thank you enough for being brave enough to ask this question as this kind of stuff goes through the minds of most people who are in kiss flipping. They sabotage their own potential because its too dang easy.
Bob
Brad G:
WELL SAID BOB!
I kind if feel the same way Mike does. Then I have to engage my brain. I am primarily “emotional” about my decisions and that gets in my way some times. I have to purposefully THINK about my decisions to make them less emotional.
I have no guilt about any kind of money I make. My goal is to make as much money as possible. Be filthy stinking money rich! At whatever cost short of stealing and fraud. (Well maybe some others too but can’t think of them right now and definitely want to treat others right and NOT take advantage of anyone. Get the real idea?)
What am I going to do with the money? After a minimum of 10% to the church, and a decent level of living, it’s going to be charitable giving and setting up foundations for the less fortunate. That is how I will get my warm and fuzzies!
Brad
Bob Norton:
Thanks for posting. What is really interesting and we all have to check ourselves on “the little things” is how you said, “Filthy, Stinking Rich”.
Filthy…..Stinking…..then followed by Rich. I never use the word in this way and I know by no means did you consciously do it. I use “enrich” and “passion” and “abundant” and “easy” to describe being rich.
By changing a few little things, even those few little words, will start to make a difference.
Please don’t think I’m knocking you. I got the point of your post. Just try to observe your thoughts and words. AND go buy the millionaire mind by T. Harv Eker right now on Amazon. RIGHT NOW!
Thanks,
Bob
Mike C:
Thanks Bob. Your words are kind and well received. A Chief Definite Aim includes being like you, Bob Norton, and a little JP too. I must remember to keep you guys in my prayers.
So…what do you think? Agree? Disagree? Please post your own thoughts on this below…
Our economy places a high value on knowledge. A Wall Street banker making 3 mil. a year does nothing but warm a chair but he does bring value to himself and others by his knowledge.
We wholetalers do the same thing. We make the homebuyer aware of something he doesn’t know. We improve the neighborhood by eliminating a vacancy. We improve the economy by paying taxes on our profit. We help a family move into a house that they perceive will enhance their quality of life.
If we weren’t around the buyer would be ignorant of the value he could get by dealing with us, instead of paying full retail and getting less for his money or being forced to stay completely out of the market. The banker wouldn’t get a loan, the R/E taxes would pile up, and the IRS wouldn’t get paid.
I think we need a raise!
This is a very good post, I used to think about the same thing until I really sat down and thought about it. I am giving investors (who I wholesale to) more time to do what is profitable for them like rehabbing. Time is the ultimate gift in my opinion. For example: at a local restaurant, the owner can probably flip burgers and make fries himself but why would he do that when he can hire 3 or 4 people to do it for him in less time than it would take him, and he can also focus on other things that he has to do. In regards to real estate, why would Mr. Rehabber spend his time looking for a deal that can make him 50k after he rehabs it when he can pay a wholesaler(s) 5-10k to bring him MULTIPLE deals that will make him 40K WHILE he is rehabbing other projects. Its about leveraging their time. 2 heads are better than 1 I guess you can say.
I agree that we’re real estate deal makers. I was with a Realtor 2 months ago looking at an REO property and told him I’m a wholesaler. He indicated his ignorance by saying basically he didn’t think wholesalers offered added any value to a house. I told him, although I don’t do anything to a house, we (wholesalers) are in demand by the buy & hold and rehabber investors that don’t want to deal with sellers. We make it easy for other investors to find good deals.
I don’t believe I can add anymore than what has already been said so I’ll just leave you to ponder on this quote: ” I think it is a man’s duty to make all the money he can, to keep all the money he can, and give away all that he can.”
—John D. Rockefeller Sr.
From my perspective, I feel that I am in fact providing everyone involved in my wholesaling business a great service. Since I sell primarily to other investors, I consider it a great service to the investor/buyer since I did all the leg work to get the deal (perhaps even a lengthy short sale) and am selling to him/her at a great price. Then, he rehabs the property and sells it to a retail buyer. Therefore, that increases values in the neighborhood, AND the retail buyer gets a property that is newly rehabbed at a price below market value. This is just my train of thought. Anyone agree? Now, I do understand that Mikes’ original question may have been about the “wholetaling” (not wholesaling) biz, which I think he says is wholesaling retail properties, and I had never yet heard of this term. So please clarify if I answered this question from the wrong standpoint. Thank you all.
Wow……Bob, thanks for reminding me why I am in this business…
Law
BOB YOU REALLY MADE A VALUED POINT. BOB HAVE ADDED VALUE IN MY LIFE,JUST BY SHOWING GUY’S HERE IN MI. HOW TO DO DEALS, IN TURN THEY SHARE WITH ME IDEAS AND TECHNIQUES TO GET MY DEAL DONE.
Mike C: Sir, I am bitterly disturbed by your Email. You, evidently have bought into the idea, that to be successful is somehow wrong and disgusting. You ask for help in finding a reason for doing what you are successful in doing. I’ll give you the perfect answer: You are doing for your family. It is your responsibilty to feed them, to clothe them. to encourage them to be better than you are in all ways. To teach them about our forefathers and what they had to pay to give us a constitution!
We are/were a nation of individuals who had likes and dislikes about everything. That is now not politically correct. That was what seperated for the other nations of the world. That is why we are the most successful of all the countries of the world. The most giving.
If you buy a house from the bank and end up creating a house that is off the banks toxic list, will begin to pay a mortgage, pay taxes, insurance etc. You have help the new homeowner however he ends up with the house, the bank and the country. Don’t let the haters of our country stop you from being successful and a blessing to our country.
I offer the simple prospect that, as a wholetailer, you are providing a simple, yet extremely valuable service, to those who lack the knowledge, ability or means to acquire respective properties other than by means that you provide for them. It is possible, if not likely, that you may facilitate financing that they can not otherwise get and, even at a premium for doing so, you may be selling to them at a lower price than they could otherwise negotiate for themselves.
On the purchase, you solve a problem – the seller’s. On the sale, you solve another’s problem – the buyer’s.
While having offered only a simplistic perspective here, does not the investment in training yourself to arrange such win-win transactions warrant compensation for same? Does this not represent extraordinary value for those who benefit from what you are thus able to do for them?
I have asked similar questions of myself in the past. These are among the ‘answers’ that I will apply to my own REI endeavors.
It was interesting reading my response there…..sometimes I forget what I said….To further illustrate how I feel about this subject, here is sample of my next wholetale listing in the MLS:
Property sold As-is. Seller is a licensed capitalist in the state of Arizona and in the United States. Seller has seen the property once and has done zero repairs. To calculate Sellers exact profits, see previous listing. Seller has the right to waive the generous agent bonus if too many complaints are made about Seller’s profits. Buyers must sign addendum stating they have read and understand the United States Constitution before submitting offers.
I SWEAR ON MY LIFE, IF I GET 20 PEOPLE WHO EMAIL ME THROUGH MY WEBSITE OR WHATEVER, I WILL POST MY NEXT PROPERTY LIKE THIS ON THE MLS.
I’m begging somebody to “double dare” me.
Bob Norton
Bob,
Double Dare!
I want to see what responses you get from the comments!
Brad
I see no issue with it. How is it really any different than any other ‘broker’? They act as the middle man, putting buyers and sellers together. By using the network they have developed, they have brought people with needs and people with wants together. That sounds like adding value to me.
If the two weren’t brought together the deal might not otherwise have happened.
.-= Chris Cliff´s last blog ..Investors at Fault in Housing Collapse – They weren’t alone! =-.
Time is a valuable commodity. Landlords like to concentrate their efforts on managing their properties. Rehabbers and to focus on fixing up their projects and getting them ready for resale. They could go out and find the deals themselves, but that will take away time from their speciality niche. Wholesalers spend the money marketing for the deals, crunching the numbers, negotiating with the sellers, getting the deal under contract and checking the title and getting it ready for the landlords and rehabbers. Wholesalers are not only deal finders, they are invaluable assistants to investors. A deal is a deal, it doesn’t matter where or who it comes from.
My take on this is as follows: we tend to forget that a house is just a commodity and get all emotional about them. Do you think a car dealership gets all emotional about the trade-in they gave you $2000 for, detailed then put back on the lot for $9000 the same day? Or do you feel guilty when you buy something from Overstock.com that they bought at $2 and sell to you for $10 when it originally sold in stores for $20? It is what is called free enterprise. You have provided a service: marketed for and negotiated a good price on a house. You have relieved the homeowner of whatever was keeping them from selling their home. You offer the end-buyer a free and clear house with some equity without the added cost of a commission, whether you rehab it or not. You have marketed to find the matching buyer. You deserve to be paid. period. If the situation fit the conventional model, you would not have been able to serve as facilitator.Never ever de-value what you bring to the table. If the homeowner (and buyer) could’ve done this without you, they would have!
Hello folks!
I am an Australian who is virtually flipping US properties in OZ. I believe the debate about VALUE has already been answered in every single post, because value is simply our very subjective way of defining meaning to anything in this world. So none of us are wrong or right to be wholesalers or critics of wholesaling.
This may lead to an ethical debate, so lets add a moral barometer Q. to measure what harm we do to ourselves and to others through our actions as wholesalers through the question – ‘what harm do I as a wholesaler do myself and others when I attempt to find the most undervalued property to provide a person with less passion to find undervalued properties, and more priorities set on buying and rehabbing or creating their own profit with their own investing strategy?* I think the answer lies in the following which I believe is a universal truth from the Talmud: *we do not see things as they are…we see things as we are*
Let me explain….Value is simply an emotionally infused meaning we ascribe and project onto anything in life.
My Value as a wholesaler is to be the most cherished and grateful father, husband and member of the world community I can be….this is my passion, wholesaling is my means to obtaining continual profits to fuel my passion of an ideal world for myself and my immediate family and friends.
I believe man’s fundamental motivational drive in life is the meaning he associates to everything in his life…I believe instinctual drives are secondary and subordinate to this profound meaning we all use to craft our lives for the positive or the negative in any endeavor. – read “Man’s search for meaning” for Viktor Frankl’s notion of logotherapy or meaning-therapy
The presupposition behind the question *what value does a wholesaler give?* is that a quick flipper is obliged to find a value that is aligned with the value of the end buyer and seller* and also that there is perhaps no value in providing something that others could potentially do themselves. The question may be positively and consciously well meaning but I disagree that the value that a wholesaler finds in his work has to be similar to or aligned with the very personal and very different value and strategy that an end buyer or motivated seller finds in dealing with us. Having said that, I think it is a good question to ask because we cannot bunch all wholesalers together and there are greedy flippers out there and equally greedy buyers and sellers…but is greed wrong? when there is no such thing as scarcity of money (at least in my world! Is *greed* or *pursuit of abundance* wrong especially when it is fuelled by a positive intention to better oneself and ones family? I think only you can answer this yourself with the meaning you ascribe to the art, science and service of wholesaling
Bill B
Some of the most genuine and honest real estate information I have read in the past six years as a investor. Thank you for proving that there are good people in this business.
.-= Shauwn´s last blog ..The Real Estate Investor Radio Show – Following the Clues of Success by Looking for Mentors Outside of the Family =-.
I really like Bob’s mentality. Leading a balanced life is most important and flippers really do help other people.
I did it to get started but now I do nothing but buy and hold for cash flow. Flipping was a way to get started.
I think they can add valaue but in the real world we see to many people with no training and no real busienss sense taking advantage of people
Well trained and seasoned wholesalers can add real value to thier clients by buying right and passing some of the profit on to the next guy – but experiance that 1 on 10 are gpood the reast are losing thier own money and the money of the people that buy from them
.-= Mike Lautensack´s last blog ..Discover How to Use Post-It Notes to Get Sellers Calling in Droves =-.
One way to answer the question is not to define value from within, but to see see how this activity is valued from without. Whether it is rehabber, or retail buyer, or whoever that is buying, the fact that somebody else is willing to spend the $10k assignment fee not only shows that somebody else places value on the activity, but also shows exactly how much they value that activity. So, we should be asking *buyers* what they perceive to be getting for that $10k, whether it’s a saving in search costs, hassle, time, discount vs. retail, or anything else.
The question may really be a way of suggesting that the wholesaler doesn’t add much to the equation, or, if you acknowledge that the wholesaler brings hard-won experience, contacts, marketing budget, etc into play, that the value of all that is really, from the perspective of the wholesaler, not as valuable as the assignment fee.
I would just remind that there’s a free market, and if somebody else didn’t see that value, they wouldn’t pay.
.-= Eric in Silicon Valley´s last blog ..Twitter Weekly Updates for 2010-02-07 =-.